SmartForce, the Dublin-based e-learning company bought by its US rival SkillSoft, overstated its profits by up to $127 million (€108 milion) over a three-year period up to 2002,writes Jamie Smyth, Technology Reporter
An accounting investigation ordered by SkillSoft following its merger with SmartForce found the Irish firm had booked revenue before it should have been recognised on its balance sheet.
It also found that SmartForce incorrectly accounted for certain intangible assets and expenses incurred when it acquired nine companies in a period of rapid growth in 1999-2000.
The disclosures, which are contained in a recent filing with the US Securities and Exchange Commission (SEC), should not have any material impact on SkillSoft's future financial performance.
But analysts speculated yesterday that the restatement of SmartForce's financial results may affect a continuing SEC investigation into the firm's accounting practices.
It may also be used against SkillSoft and its executives in a series of class action lawsuits taken against the firm by disgruntled shareholders.
Mr Trace Urdan, an analyst with the US firm ThinkEquity, said the fact that SkillSoft had restated SmartForce's accounts could potentially help litigants in their legal cases against the firm.
He said SkillSoft's restatement demonstrated that SmartForce should have recognised revenues over the lifetime of its contracts rather than book all the cash upfront.
Mr Urdan said it was difficult to judge what effect the restatement would have on the firm.
He said SkillSoft's share price was being weighed down by ongoing lawsuits and a SEC inquiry.
SkillSoft faces a legal suit for damages from some disgruntled shareholders following its disclosure last year that SmartForce had improperly booked revenue, shortly after it acquired the firm.
SkillSoft shares lost a third of their value following the firm's decision to start an investigation into SmartForce's accounting practices last year, although they recently recovered to reach 12- month highs of more than $8.
SkillSoft also faces a separate class action lawsuit filed in the late 1990s against SmartForce and several of its executives, including Mr Greg Priest and the wealthy Irish technology entrepreneur, Mr William McCabe.
This $500 million damages suit alleges that SmartForce made untrue statements of material fact to induce people to purchase its shares.
A hearing on this case is due to be held next month.
SkillSoft, which acquired SmartForce in 2002, ordered an audit of SmartForce's financial results after finding it had improperly booked revenues between 1999 and 2002. It employed Ernst & Young to undertake the financial audit, which recently published its findings in a paper filed to the SEC.
SkillSoft, which still maintains its corporate headquarters in Dublin to avail of the Republic's low corporate tax rate, employs almost 200 staff here.
The majority of the company's sales of e-learning software and courseware are made in the US.
